Stable interest rates and a continued cooling in home prices helped give housing affordability in Canada its biggest jump in almost four years in the first quarter of 2023, according to a new report.
On Thursday afternoon, National Bank of Canada released its quarterly housing affordability monitor, which it tracks through mortgage payments as a percentage of income (MPPI).
Mortgage payments as a percentage of income reached 60.9 per cent in the quarter, down 3.2 percentage points from the previous period and down 5.4 percentage points from recent highs. Q1’s affordability boost was the best improvement in the last 15 quarters tracked by National Bank.
Affordability was better for the second quarter in a row in Canada, according to the report. Each of the 10 markets monitored by National Bank showed improvement, the first time that’s happened in two and a half years.
National Bank noted that while there has been improvement in MPPI, it remains elevated, and has not retrenched the massive rise in unaffordability observed during the COVID-19 pandemic.
Canadians looking to enter the housing market in a major urban centre now need to save an average of just over $50,000, which National Bank estimates requires 73 months of saving. The historic average since 2000 is 40.5 months of saving.
The bank cited a continuing price decline in the first quarter as helping Canadians better afford their homes. National Bank said median home prices were down for a third consecutive quarter, marking an overall decline of 7.3 per cent, which the bank called “the biggest drawdown in a generation.”
Vancouver, Toronto, and Hamilton, Ont., saw the biggest price declines and, by extension, the best improvements in affordability in the quarter. Despite the improvements, MPPI in Toronto (82.8 per cent) and Vancouver (94.9 per cent) are still well above the national baseline and the cities’ historical averages.
At the same time as the housing correction was proceeding, the Bank of Canada announced a conditional pause on interest rate hikes in the quarter, providing some relief to mortgage rates.
National Bank says that its benchmark five-year fixed rate mortgage used to calculate affordability declined 14 basis points.
Looking ahead to the rest of the current quarter, National Bank expects Canadians will continue to see relief on the interest rate side of the equation, though home prices and sales activity are beginning to tick up as buyers move off the sidelines.
The report’s authors said they have doubts about whether the price rise will be sustained, however, given the Bank of Canada policy rate’s current “restrictive” levels following a series of rate hikes in the last year.
Median household incomes were also up 1.3 per cent quarter-to-quarter, National Bank said, helping to improve the overall affordability picture for Canadians.
To learn more about how you can break into Canada’s housing market, check out Global News’ Home School series here.